Shares in newly floated internet bank Egg closed up almost 11% on the issue price at the end of the first day of trading.

The shares closed at 177.5 pence, having been issued at 160p, but were at one stage as high as 190p as they soared in early trading.

Egg's issue price was set on Sunday by its owner, UK life insurance and pensions group Prudential, at the higher end of the predicted range of 130p to 175p.

Egg remains something of a gamble

Justin Urquhart-Stewart, Barclays stockbrokers

About 85,000 applications were received from customers and staff at Egg who were entitled to buy the shares.

City firms snapped up the rest and the issue was eventually nine-times oversubscribed.

Some private investors were annoyed to find they could not trade immediately in their shares through the e-mail facility set up by Egg.

Those wishing to sell fast to reap their gains when the share price rose in early trading were frustrated to find that the link did not work until about 0800 GMT - an hour after the market opened.

Some were then further annoyed to find that they had been given an incorrect account number, meaning they still could not sell their shares (see the link to "Float scrambles Egg" on the right-hand side of this page).

Valuation concerns

Regarding the price of Egg's shares, some analysts were concerned that they may have been overvalued and could fall below the 160p issue price.

"We have always struggled to find value in the shares above 130 pence. We would tend to be concerned about the stretched nature of the valuation," said Jeremy Batstone, head of research at NatWest stockbrokers.

Analysts also said the fact that Egg still had to turn a profit could be a concern for investors.

Egg was launched by Prudential in October 1998 and has since attracted more than one-million customers and almost £8bn in deposits.

But in the year to 31 December 1999, it showed a loss before tax of £150m.

"What concerns me is that this is still a business which has a very limited track record and has not yet made a profit," said Justin Urquhart-Stewart, of Barclays Stockbrokers.

"Egg remains something of a gamble and as an investor I would rather buy the shares of its parent company, Prudential, which still owns 80% of Egg," he said.

"It will benefit if Egg proves a success but be strong enough to survive if Egg proves a failure," he said.

The issue share price meant that Egg was valued at about £1.3bn when it started trading.

This is well below estimates earlier in the year before the collapse in tech stock prices, some of which had valued Egg at up to £4bn.

Boost for Prudential

The strong initial demand for Egg's shares was a boost Prudential, which earlier had admitted to having had second thoughts about the timing of the float because of stock market volatility.

But in the event, "We had very strong demand from the UK, Europe and the US," Prudential chief executive Jonathan Blommer said.

Prudential sold about 20% of Egg's share capital in the offering.

Egg received more than 85,000 applications from staff and customers totalling £70m.

Because of the over-demand for shares, investors who applied for the maximum £1,000 will receive £752 in shares.

But those who applied for £200 or £500 worth of shares will receive the full amount.

Egg will award its directors and some senior managers about four million shares plus cash payments totalling £830,000.

Acquisitions

In the three months to 31 March, the bank says its losses before tax were £38.3m - but it still expects to break even during the fourth quarter of 2001.

The flotation will raise £150m for Egg and £86m for Prudential.

The bank says it wants to use the money raised to expand through acquisitions.

"We're in no doubt now of our responsibility to deliver for our new
shareholders," Egg chief executive Mike Harris said.

"We now have the currency to seek partnerships and acquisition opportunities."

He has said he has three potential goals for acquisitions: to expand internationally, particularly into Europe; to buy in technology; and to acquire innovative internet business models.